Law: Income Tax Ordinance, 2001

Section: 111,111(1),111(1)(a),111(1)(b),111(1)(c) ,111(1)(d),120,121,122,122(1),122(4),122 (5),122(5)(i),122(5)(ii),122(5)(iii),122 (8),122(9)

INCOME TAX ORDINANCE 2001 (XLIX OF 2001)----Section 111---Explanation added in Section 111 diverts and effects a substantive right of the taxpayers to a separate notice and proceeding under Section 111, the same would not have retrospective effect and would apply prospectively.- The High Court held that the Explanation added to Section 111 of the Ordinance through the Finance Act, 2021 to the effect that a separate notice under the said provision was not required, was to apply prospectively as it adversely affected vested rights of the parties. On a plain reading of the aforesaid Explanation, it appears that it is couched in clarificatory and declaratory terms for �removal of doubt�. However, we note that the intention behind the Explanation and the effect of adding the Explanation is to take away the right to a separate notice and proceedings under Section 111 if the grounds under Section 111(1)(a) to (d) are confronted to the taxpayer through a notice under Section 122(9) of the Ordinance. Therefore, in essence, it abridges the right to a separate notice and proceedings under Section 111 of the Ordinance, which was the requirement of the law as noted above. As a consequence, the Explanation takes away a substantive right of separate proceedings of the taxpayer, which otherwise existed prior to the introduction of the Explanation in Section 111. However, where the effect of the Explanation warps out of its normal purpose explained above, and acts as a substantive enactment or deeming provision, or enlarges substantive provisions of law or creates new liabilities, such an Explanation cannot be given retrospective effect unless the express language of the Explanation warrants such an interpretation. It is settled law that a change in substantive law which divests and adversely affects vested rights of the parties shall always have prospective application unless by express word of the legislation and/or by necessary intendment/implication such law has been made applicable retrospectively. As a cardinal principle of interpretation of statutes, tax statutes operate prospectively and not retrospectively unless clearly indicated by the legislature, therefore,…

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